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Inventory
SCM Inventory
| Question | Answer |
|---|---|
| What is Inventory Management? | key factor in the success of any organization |
| What are the two direct impacts of inventory? | Service levels and profitability |
| Why inventory is important? | Because it is the life of the supply chain |
| Examples of the impact of insufficient inventory | Lost sales to customers; Equipment downtime due to lack of spare parts; Lack of limited amount of components and raw materials |
| What does inventory includes? | Raw materials, WIP work in progress, finished goods, merchandise, spare parts and other operating supplies |
| What is the greatest challenge for managing inventories? | Balancing supply with demand |
| Inventory management involves balancing between 3 classes of costs | Acquisition, carrying and stockout costs |
| When acquisition costs are incurred? | during purchase order (PO) preparation, processing and during receiving and inspecting purchase items (PURCHASE) |
| When carrying costs are incurred? | in MAINTAINING a stock of goods in storage |
| When stockout(SHORTAGE COSTS)costs are incurred? | they are incurred when an item IS OUT OF STOCK |
| What acquisition costs include? | Purchase price and associated administrative costs, including LABOR to receive items |
| What are carrying (STOCKING) costs? | Buildings (warehouses), utilities, systems to track inventory and labor to manage the tracking systems. Borrowed funds |
| When stockouts costs occur? | They occur when there are not enough products on hand to meet immediate requests of internal manufacturing operations or customers orders |
| What may include the costs of stockouts? | backorder costs and lost customers |
| What is the necessity of inventory? | Firms hold inventory to meet the needs of their customers |
| Why firms hold inventory? | to deal with uncertainty in the supply chain |
| Where the uncertainty comes from? (inventory) | Manufacturers delays, late deliveries, poor quality, damaged or incorrect deliveries |
| What is the challenges for most firms holding inventory? | satisfying manufacturing and customer demands while avoiding excessive financial commitments |
| What is replenishment? | Good decisions about what inventory to acquire, hold, store, timing and frequency |
| List problematic reasons for carrying inventory | Poor demand, poor forecasting and high forecasting error; product theft; poor supplier performance; poor or inexistent inventory planning and tracking systems; inattention to obsolete inventory disposition |
| Where usually inventory is held? | Supplier facilities or at the buying's company warehouses |
| What are the various functional types of inventory (7) | Cycle Stock, In-process Stock, Safety Stock, Seasonal Stock, Promotional Stock, Speculative Stock and Maintenance Repair and Operations |
| What stands for MRO? | Maintenance Repair and Operations Inventory |
| What is a cycle stock? | Inventory that is depleted through normal use or sale |
| What is in-process stock? | Goods being manufactured or in between manufacturing process |
| What is safety stock? (buffer stock) | Inventory held to protect against uncertainties in the supply chain |
| What is seasonal stock? | Inventory held in advance of the season. Includes apparel, sporting goods, and specialty holidays |
| What is promotional stock? | Inventory held to respond QUICKLY to marketing promotions or price incentives |
| What is speculative (hedge) stock? | Commonly associated with companies involved in manufacturing or assembly. Inventory held to protect against expected and possible price increase |
| What is the maintenance, Repair, and Operations (MRO) Inventory? | Includes parts and materials |
| what is inventory management? | Means of controlling and managing the flow of products into, within, and out of an organization. |
| What is effective management inventory? | Using a variety of different inventory management tools and techniques |
| What is the central goal of inventory management? | To optimize levels of inventory |
| Historically, which questions are involved in managing inventory? | How much inventory to hold, how much to reorder and when to reorder |
| What is the key element of inventory planning? | To estimate the amount of inventory required over a set time period to meet customer needs |
| What can accurate demand planning prevent? | both oversupply and undersupply of inventory |
| Several tools, techniques and strategies exist for determining how much inventory to hold? | True |
| What is the synonym of inventory turnover? | Inventory turns or inventory velocity |
| What is the fomula of inventory turnover? | sold inventory / inventory held = inventory turn example 200/100 = 2 inventory turns |
| What are the inventory count control? | Physical inventory (counting the entire inventory at one time) or cycle counting (prescheduling inventory) |
| Why accurate inventory is essential? | To ensure where is inventory in the supply chain, how much inventory is moving in and out and how much is held at one point in time |
| What are the inventory management personnel tasks? | Classify, label, maintain inventory and keep accurate records, including location for easy retrieval |
| What are additonal duties of inventory personnel? | recording incoming inventory purchases and outgoing inventory types and qualities in the shipping and receiving department |
| List types of inventory management jobs | Inventory Control Analyst, Inventory Data Analyst, Inventory Operations Specialist, Quality Assurance and Inventory Supervisor |
| to whom the inventory supervisor usually reports? | to the warehouse manager or inventory manager |
| Key responsibility of inventory management | Forecasting the amount of inventory that will be required over a set period of time to meet customers needs |
| Why companies do not want to hold inventory? | Because it is expensive to hold |
| What is inventory replenishment? | The process of determining how much of a material or product to make or buy and when to procure it |
| Out-of-stock is the same as stockout? | Yes |
| What is inventory replenishment part of? | A larger inventory management process |
| Marketing, sales, demand planning, and inventory personnel work together to determine the correct service level for a company or a particular product? | True |
| List the key metrics for managing inventories | Inventory turns; Average Inventory Level, Line Item, Line Item Fill Rate, Order Fill Rate, Service Level and Months/Days of Inventory on Hand |
| What is inventory turns? | The number of times inventory turns over, or cycles, over a one-year period |
| What is average inventory level? | The inventory maintained in the system |
| What is Line Item? | Represents an individual line or stock keeping unit (SKU) on an order with a defined quantity |
| What is the Line Item Fill Rate? | The total number of line items filled, divided by the total number of line items on an order |
| What is order fill rate? | Number of orders filled on time. Should be close to 100% as possible |
| What is service level? | Represents the likelihood of having available stock in a replenishment cycle |
| What is Months/Days of Inventory on Hand? | This represents how long inventory should last based on past product demand HISTORY or PROJECTED future demand |
| What inventory personnel can do to ensure the most efficient supply chain? | Balance all inventory criteria |
| What is the key for customer satisfaction? | Ensuring replenishment processes are optimized to have an ample supply of products |
| What are the several key criteria an inventory manager can use? | Dollar Value; Turnover or Velocity; System-wide quantity or volume; Size; Critical Items; Shelf Life |
| What is the dollar value method? | A method to determine the item's value. Value can be regarded across three categories of inventory and value is added as it progresses through the supply chain |
| What are examples of raw, WIP and finished goods? | Raw - paper ; WIP - printed pages; finished goods - book |
| What is turnover/velocity inventory classification? | How fast an item sells or moves in an out of stock |
| What is the system-wide quantity volume? | Represents the quantity of a particular item that is on hand or immediately available |
| What is the size/cube method? | The amount of space taken up by an item or a case of an item. The amount of space represents the inventory carrying costs |
| What is the critical items method? | Inventory based on highly critical item |
| What is the shelf life method? | Length of time an item can be held or stored until it is unfit for sale, use or consumption. Example - prescription drugs, food and perishables |
| What are the inventory models? | ABC Analysis and Time-based Inventory Analysis |
| What is called the Pareto principle | the 80/20 rule |
| What is the important to use the Pareto's principles to rank inventory? | Because it enables the separation of the vital few from the trivial many |
| What is the basis of the ABC (Pareto) analysis? | A relatively small number of items or SKUs may account for a considerable proportion of the value or impact of stock held. |
| Can you summarize the Pareto rule | 20% of the items held in stock account for approximately 80% of the total value of inventory |
| For what purposes ABC analysis is used? | Differentiating service level categories; specifying lead time categories; cycle (continuous) stock counting; warehouse layout and inventory location |
| Are there any items that are more important in the A, B, C categories? | A has more percentage of value, velocity and volume but all three categories are important to some extent |
| What is the Time-Based Inventory Analysis? | Certain times of the year companies hold more inventory than at other times. |
| Why companies hold more inventory at certain times of the year? | To prepare for a given holiday season |
| What is the Min-Max Inventory Reordering System? | Min - minimum and Max - maximum is a basic reordering system integrated into many ERP |
| what the min-max Inventory represents? | The Min value - the stock level that triggers a reorder. The max - the new target stock level resulting from the reorder |
| What is called the difference between the Min-Max? | Economic Order Quantity (EOQ) |
| What the Min-Max process tracks continually? | The existing total stock level (sum of the stock on hand plus the stock that is on order for each unique item) |
| What is inventory control? | A key part of inventory management and overall supply chain process |
| What the inventory control involves? | creation of inventory records, maintenance of these records and counting of inventory |
| Is inventory control also inventory administration? | Yes |
| Inventory control crosses several functional boundaries? | True |
| What made the inventory control more complicated and more important? | The growing need for information immediacy |
| What are the tools and techniques used for inventory control? | 80/20 rule, bar coding, warehouse and inventory management systems, RFID (Radio Frequency IDentification) |
| Inventory managers can take advantage of Pareto's principles? | True |
| Companies today use IMS that have integrated IMSoftware | True |
| What Inventory Management Software is used for? | To track inventory levels, orders, sales, and deliveries |
| What else WMS is used for? | In manufacturing is used to generate work orders, work center routings, bills of materials, and other manufacturing documents |
| What else the WMS enables? | Enables the analysis of inventory, including inventory usage patterns over time, inventory costs and ABC analysis |
| What is one of the applications available in a WMS? | Slotting or Inventory Control Deployment System (technique to positioning inventory) |
| What slotting systems do? | Develop recommendations for redeploying inventory in the warehouse to reduce picking time and improve efficiency |
| What is Barcode? | A unique item identifier consisting of printed vertical bars with white space that contains OPTICAL characters with information that is read by a SCANNER |
| Define shipping container code | a 14-digit barcode place outside a container or pallet |
| What are the other names of shipping container code? (SCC) | ITF-14, SCC-14, Master Carton Code and UPC (Universal Product Code) |
| What is the ITF-14? | Acronym for interleaved 2 to 5 (the type of barcode used) and 14 digits (length of the container symbol) |
| What is the type of technology that uses radio waves frequency to identify objects automatically (track and manage inventory) | RFID |
| How inventory storage is defined? | It is defined by static location |
| What is inventory deployment? | Efficiently and effectively staging and distributing goods while achieving ways to reduce or eliminate the need for storage locations |
| What are the alternatives to reduce or eliminate inventory storage? | Cross-dock, quick response (QR), traditional warehouse and semi-permanent storage |
| What is a cross-dock method? | It is a no-storage inventory. Products are received and then sorted and shipped without ever being stored. This method results in highest velocity or inventory turnover |
| What is the QR (Quick Response) - Minimal Inventory Storage? | It means that when a customer purchases a product in a store the scanned barcode sends an electronic message throughout the store's inventory system |
| What relies on POS data to indicate when inventory needs to be replenished? | QR inventory strategies |
| Define Historical Demand Data | Record of previous demand for products purchased over time, used to predict possible fluctuations in demand |
| What is the Push Distribution Strategies? | A strategy that promotes stocking DCs and retail points in anticipation of future demand |
| What is called semi-permanent inventory storage? What is the primary purpose? | It is called specialty storage and it is a buffer or safety stock |
| List the conditions that lead to semi-permanent storage of inventory | a) Seasonal demand; b) Speculative or forward buying; c) Products that require conditioning; d) Erratic demand; e) Lot quantity/bulk discount; f) Maintenance requirements |
| Define seasonal demand? | Stock held in advance of the demand season |
| Give an example of speculative or forward buying | Heating oil stored in anticipation of winter demand |
| Give an example of products that require conditioning | Refrigerated warehouse |
| Give an example of erratic demand | Highly specialized items such as medical equipment |
| Define Lot quantity/bulk discount | Product held after it was purchase to take advantage of bulk discount |
| Define Maintenance requirements | Spare parts held in the event of equipment wear or failure |
| What is a reflection of supportive inventory system? | Good record keeping |
| What are the two methods of inventory control? | Manual and Computerized |
| What method is used in the manual inventory control? | Stock card (index cards) |
| Perpetual vs Periodic Accounting | Perpetual system normally accounts for all transactions and is associated with computer system. Periodic system requires someone to physically count what is on hand when information is needed and it is associated with manual systems |
| Batch vs Real-time processing | Batch system - a form of periodic accounting for inventory and value. Batch - orders will be collected over a period of time. Real time - orders will be released for picking as soon as they arrive |
| What is numbering schemes? | Inventory control that involves the control of SKUs |
| Two types of inventory and stock location control | System-Directed Put Away and Retrieval and Storage/Picking Address |
| What is inventory accuracy? | Any storage location that meets the following criteria: a) has the correct number: b) correct quantity for that item number; c) there are no exceptions |
| What happens if an inventory is accurate? | The inventory management can rely on records to reduce or add more stock |
| What are the consequences of inaccurate inventory? | Over or under-ordering replenishment inventory |
| How inventory accuracy is calculated? | By dividing the total number of correctly counted locations by the total number of locations counted - example 80/100 = 80% |
| What is benefit of cycle counting inventory? | Less expensive and more conducive to promoting accuracy |
| What Cycle Counting involves? | Physical counting / Systematic counting of each item carried in stock, at least once a year, at a planned interval or frequency |
| What is the base of cycle counting? | ABC classification |
| What is Cycle counting also used for? | To correct known inventory errors or handle special situations |
| Cycle counting is intending for controlling and measuring? | True |
| Very useful tool for the inventory manager to maintain and improve inventory accuracy | Cycle counting |
| The procedures for establishing and conducting cycle counts are similar to the procedures for taking a periodic physical inventory | True |
| Cite two characteristics of cycle counting | Less expensive and ongoing activity |
| What is the statistical process control? | Quality management techniques to monitor and measure accurate inventory record |
| What is demand forecast? | An estimate of company's future needs |
| What are the inputs for effective inventory management? | Forecasting demand and lead time |
| What is the lead time? | Amount of time that it takes to deliver an order |
| Give examples of independent and dependent forecast | Example: complete table and legs; finished bike and bike parts |
| How is called short-term forecasts? | Operational or tactical forecasts |
| How is called long-term forecasts? | Strategic forecasts |
| What are the forecast models used? | Simple Moving Average and Weighted Moving Average |
| What is the difference of the two forecast models? | A weighted moving average applies a factor, a weight, to each period and it is larger |
| The weighing factor in a weighted moving average forecast should add up to | 1 (if using 4 months, the total weight factor should up to one - ex 0.2 + 0.4 + 0.3 + 0.1) |
| A flaw or drawback of the simple moving average is when | Equal weighs are included for each time period |
| What is the formula for simple moving average forecast? | The sum of the total number divided by the number of items, months chosen - ex 150 +50 + 250 = 450 / 3 = 150 average |
| What is the forecast error also called? | Margin of error |
| How simple forecast error is calculated? | Subtracting the forecasted sales from the actual sales for the same period |
| What MAPE stands for? | Mean Absolute Percent Error (MAPE) |
| MAPE is commonly used to calculate forecast error? | True |
| What is the formula of Mean Absolute Percent Error? | Forecasted - Actual / Actual x 100 (expressed in percentage), at the end get the average |
| List three items that accounts for variability/uncertainty in the inventory process | Demand Changes, Lead-Time and Obsolence |
| Accurate and assessable visibility for all SKUs are critical to a company's overall success | True |
| What supply chain involves? | A flow starting from the initial point of origin to the ultimate consumer |
| What is SCM is about? | SCM is about integrating supply and demand within across multiple companies and organizations |
| What is the impact of not managing invetory? | Failing to manage inventory have a detrimental effect on company performance |
| What is affected by the mismanagement inventory? | Purchasing, Manufacturing, Inventory, Warehousing, Transportation and Customer Service |
| What is the bullwhip effect? | This phenomenon occurs when companies significantly cut or add inventories |
| What are the other names for the bullwhip effect? | Whiplash Effect or Forrester Effect |
| What is the effect of the bullwhip effect? | Creates disruption and expense within the organization and has a ripple effect for customers and suppliers. It also affects inventory holdings throughout the supply chain |
| What are the characteristics of the bullwhip effect? | Variability in the supply chain due to order placement, order fulfillment, demand and supply variations, lack of communication and disorganization |
| What CPFR stands for? | Collaborative Planning, Forecasting and Replenishment |
| What is crucial in a supply chain? | Communcation and collaboration |
| What CPFR aims for? | Reduce uncertainty in the forecasting to avoid the bullwhip effect |
| What is the way to reduce uncertainty in the Supply Chain? | CPFR - Collaborative Planning, Forecasting and Replenishment |
| What frameworks CPFR combines? | Intelligence of trading partners and fulfillment of customer demand |
| Cite the 3 approaches for managing inventory flows? | Push vs Pull Systems; Postponement and JIT (just in time) |
| What is the push vs pull Systems? | In a push-based supply chain, products are pushed through the channel from production up to the retailers. In a pull-based supply chain, procurement, production, and distribution are demand-driven rather than based on predictions. |
| What are the trigger differences between push vs pull Systems? | Push system originates upstream and pull system originates downstream |
| What is postponement inventory management tool? | Semi-finished state items that will be finished to meet individuals customer orders. Delay of finished product |
| Cite two examples of postponement | Dell computers and paint stores |
| What is the JIT inventory approach? | Strategy to shipping in smaller, more frequent lots to manage lead time and eliminate waste |
| What is the pull approach is also called? | Reactive system (example customer demand doctors to prescribe certain medicine) |
| What are the benefits of JIT delivery system? | 1) Minimized handling of materials; 2) Reduced inventory and space requirements; 3) Imposed quality discipline; 4) Reduced total production costs; 5) Reduced product cycle time |
| What is a 3PL? | External supplier that performs all or part of a company's functions |
| What are the 2 common approaches to third-party inventory management? | SMI (VMI) and Consignment Stocking |
| What is the SMI or VMI | Supplier Managed Inventory is a model in which the supplier has the responsibility for maintaining the purchaser's inventory levels. Inventory target are set by purchaser and supplier |
| What is consignment stocking? | Supplier provides products to a buyer that are stored at the buyer's facilities and inventory is still owned by supplier. Used by clothing stores. Helps the buyer reduce investment in inventory and seller does not have to store inventory |
| Why inventory performance is monitored? | to ensure overall company effectiveness, efficiency and profitability |
| Is measuring inventory performance important? | Yes, it does play an important role in determining where future courses of action should be taken |
| List metrics of inventory | a) Total inventory dollars; b) inventory as a percentage of sales; c) inventory turns; d) days of supply; e) return on assets (ROA) or return on investment (ROI) |
| Why measuring inventory is important for SCM? | Carrying too much for too long could be a symptom of INNEFECTIVE planning |
| What is the total inventory dollars? | The total dollar value of inventory companies have on hand in all locations in the supply chain |
| What is inventory considered? | Investment that companies have tied up |
| How the metric of inventory as a percentage of sale is obtained? | This metric divides average inventory by average sales in dollars. Formula - average inventory value / average sales x 100 = total inventory % |
| Is a sign of efficient if the inventory as a percentage of sales is going down? | Yes |
| What can indicate if the percentage of sales is going up? | It may indicate that a greater proportion of inventory is required and inefficient management of inventory |
| What metric is beneficial to compare inventory performance? | Inventory as a Percentage of Sales (it does not share dollar values) |
| What is the most accepted and common metric for inventory performance? | Inventory turns |
| What is the formula for inventory turns? | Sales / Average inventory value = inventory turns |
| What is the synonym for inventory turns? | Velocity (speed at which the average amount of inventory is sold or goes through companies) |
| What is the metric days of supply? | It measures the amount of days' use of inventory is on hand |
| What is ROI? | A key performance metric called return on investment |
| Why Return of Investimentt is used? | It is used to benefit of an investment or to compare the efficiency of a number of different investments |
| What is the formula of ROI? | ROI (%) = (Net profit/Investment) x 100 |
| What is the Net profit in the ROI formula? | Gross Profit - Expenses |
| Higher ROIs indicate better performances. True or False | True |
| What is the key inventory cost? | The amount of dollars invested in inventory |
| List the 4 parts of inventory carry costs | 1) Hurdle rate; 2) Inventory Carrying Costs; 3) Inventory Risk Cost; 4) Storage Space Cost |
| What is the hurdle rate? | The first and biggest part of inventory carrying cost |
| What is the second part of inventory carrying cost? | Inventory service cost |
| What the inventory carrying cost or inventory service cost relates to? | Taxes and insurance |
| What is the third part of inventory carrying costs? | Inventory Risk Cost |
| What does inventory risk cos includes? | Obsolescence, damage, shrinkage and transshipment costs |
| What is shrinkage? | Loss of material through handling damage, theft, or neglect |
| What is the last part of inventory carrying cost? | Storage Space Cost (handling, rent, heating and lighting) |
| What are the 3 steps to calculate inventory carrying cost for store goods? | 1) IDENTIFY the value of the item stored; 2) MEASURE each individual carrying cost component as a percentage of product value; 3) MULTIPLY overall carrying cost as a percentage of product value by the value of the product |
| Identify, Measure and Multiply are related to calculating inventory carrying costs. True or False | True |
| Which type of goods have the highest value among the three inventories (raw, WIP, finished goods)? | Finished goods |
| Define financial statements | Reports about an organizations' financial RESULTS and financial CONDITIONS |
| What are the two key financial statements used? | Income statement and balance sheet |
| What the income statements show? | the PROFITABILITY of companies by taking revenues and deducting expenses to result in the net incomes or profits |
| What balance sheets show? | The ASSETS and LIABILITIES for companies |
| What is the consequence of too much inventory? | Cash flow problems |
| What is the consequence of too little inventory? | Lost sales and lost customers |
| How inventory is reported in a balance sheet? | it is reported as COST |
| What return is also called? | REVERSE LOGISTICS |
| Define return | Good products that can be resold, bad products that cannot be resold, and products that can be resold after repair or repackaging |
| A large volume of product returns can severely impact the inventory measures? True or False | True |
| Approximately how much of internet sales are returned? | 1/3 of internet sales |
| What is salvage value? | The resale value of an asset at the end of its useful life |
Created by:
Lizianeusa